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Broader is better

Rochester Business Journal

October 4, 2013

New York's reputation as a high-tax state is grounded in fact. According to the Tax Foundation's most recent analysis, New York's state and local tax burden in 2010 was the nation's highest.

Or consider another benchmark-the top marginal rate paid by non-corporate businesses, which describes most small firms. A new Tax Foundation study of S corporations and sole proprietorships shows that New York has the third-highest top rate, behind only California and Hawaii.

This is the context in which a pair of state Senate committees have been conducting public hearings on ways to revamp New York's tax policies, reducing the burden on taxpayers and helping to fuel job creation.

Gov. Andrew Cuomo would argue, of course, that his administration and lawmakers already are taking steps to change New York's high-tax reputation. In particular, he has touted the new START-UP NY program as just what's needed to boost New York's image and jump-start the upstate economy. The program will create areas around colleges and universities where participating companies and their employees will be exempt from all taxes for a decade.

As noted here before, the problem with this strategy is that it benefits only out-of-state businesses, startups and a small group of other firms.

As described at one of last month's hearings by E.J. McMahon, president of the Empire Center for Public Policy, New York has "a tax code increasingly cluttered with credits, deductions and other loopholes, driven more by short-term policy goals and political considerations than by the basic principles of tax fairness, efficiency, simplicity, visibility and competitiveness."

He favors a code with a renewed focus on "encouraging all businesses to come to New York or to stay in New York, (and) to invest, to hire and to grow anywhere in New York that suits their purposes."

This would not be a simple task, because of the complexity that has built up over many years. Nor would removal of numerous targeted breaks be popular with the companies benefiting from them.

But broad-based tax reduction is fairer-and it would be more effective in the long run.